Elena Philipova
LSEG is helping clients meet Corporate Sustainability Reporting Directive (CSRD) regulations by gathering and distributing European Sustainability Reporting Standards (ESRS) disclosures. This effort, while challenging, brings long-term benefits, empowering boards to make informed decisions on sustainability.
- While the CSRD focuses firstly on reporting data, it’s also bringing sustainability into the boardroom.
- But transforming the quality, availability and consistency of data reporting is a huge task that’s taking substantial resources.
- CSRD is already driving positive changes in corporate behaviour, although the full improvements will take several years.
Across Europe and beyond, companies are gearing up for the substantial task of meeting new sustainability reporting requirements. Technically, the EU’s CSRD is primarily an exercise in what it says, reporting. Yet it’s also bringing the topic of sustainability into the boardroom.
That’s not to say the improvement in data reporting is straightforward. At the moment, although data quality and availability are improving, it remains patchy in places. To counter this, leading companies are upgrading their technology infrastructure from old-fashioned Excel spreadsheets to state-of-the-art systems.
Most important, though, is the board’s involvement. The CSRD intentionally draws directors into sustainability, shifting responsibility for the sustainability reporting of companies to directors rather than a sustainability manager buried in the corporate hierarchy. To sign off on public reporting, board members must build sustainability capacity and knowledge in the boardroom and understand why the data is being reported. This makes the CSRD nothing short of a game changer, meaning that companies are no longer just talking the talk, they’re actually walking it too: putting their words into action.
The drive to report more consistent and better-quality sustainability data is proving a major exercise, pulling in resources and people such as compliance professionals and lawyers. But the potential benefits are also considerable, providing better insights into a business’s material sustainability issues, managing better the risks, and unleashing the opportunities created by the transition to a low-carbon economy. That’s a big advantage for boards setting strategy.
Transforming reporting at 50,000 companies
Introduced incrementally from 2025, the CSRD sets a standardised framework for sustainability reporting that will apply to about 50,000 companies of which at least 10,300 are non-EU companies, according to our analysis. Alongside the climate-focused framework being introduced by the International Sustainability Standards Board (ISSB), it will lead to the reporting of high-quality, comparable data.
For evidence of how much data needs to improve, consider Scope 3 emissions which include all indirect emissions that occur in a company's value chain and are often the largest component of a company's carbon footprint. A recent FTSE Russell survey, Scope for improvement, found that only 45% of large and medium-sized companies disclose Scope 3 data, and less than half of them cover the most material categories for their sector. What’s more, the data is volatile: in over a third of cases the quantity of emissions disclosed vary by at least 50% from one year to the next.
Under CSRD, the quality and availability of data such as this will ultimately take a big step forward in informing both portfolio investors and, more importantly, the board. Directors will have better insights into sustainability-related risks and opportunities when setting strategy.
To help clients meet CSRD regulation and make more informed investment decisions, LSEG is working to collect and distribute European Sustainability Reporting Standards (ESRS) disclosures for all companies in scope of the Reporting Directive, as well as companies outside of the scope that choose to report on a voluntary basis. We also validate the data running hundreds of quality checks and engage with companies in case of inconsistency concerns. Our aim is for clients to have best-in-class information for their sustainable investment strategies, risk assessments, alpha generating activities and compliance reporting.
Benefiting the board
But like any big change, the effort involved in transforming data reporting is sparking a lot of criticism. Undoubtedly the extra reporting burden comes at a cost. As a member of the EFRAG Sustainability Reporting Technical Expert Group, I’m fully aware of the challenges, although I firmly believe that the initial costs will unleash phenomenal benefits for companies and their investors. Though, the benefits will take time to materialise.
Putting sustainability at the heart of corporate strategy
From my perspective, preparing for CSRD is driving a very positive change in corporate behaviour. It’s making boards understand sustainability issues by presenting them with the facts that they may not have considered in the past. Data powers knowledge, which trigger actions.
As a data specialist, I think one of the brightest spots associated with CSRD is the move towards machine readable sustainability reports. Data tagging will revolutionise access to and usability of sustainability data for investment and financing decision making and generate significant efficiencies for companies in meeting their reporting obligations.
Having access to accurate, timely and auditable data will empower board members to more thoughtfully consider sustainability matters in their strategic decision making.
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